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Oilseed Workshop: Economic Considerations in the 2008 Farm Bill

This workshop will provide an overview of the economic considerations related to oilseeds in the 2008 Farm Bill, including direct payments, loan rates, CCP, ACRE, SURE, payment limits, and crop insurance options.

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Oilseed Workshop: Economic Considerations in the 2008 Farm Bill

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  1. Economic Considerations Oilseed Workshop Plainview, TX -- December 10, 2008 Wichita Falls, TX -- December 11, 2008 Steven L. Klose Financial And Risk Management Assistance Department of Agricultural Economics Texas AgriLife Extension Service The Texas A&M University System

  2. Overview • Oilseeds in the 2008 Farm Bill • Direct Payments • Loan Rates • CCP • ACRE • SURE • Payment Limits • Crop Insurance Options • APH / CAT • RA • NAP • On-farm Biodiesel Production?

  3. 2008 Farm Bill • Significant Changes • ACRE • SURE • Payment Limits • Similar to 2002 Farm Bill • Direct Payments • Loan Rate • Counter-Cyclical Payments

  4. Other or Minor Oilseeds • Considered “Covered Commodities” • Sunflower seed • Rapeseed • Canola • Safflower • Flaxseed • Mustard seed • Crambe • Sesame seed • Or any oilseed designated by the Secretary

  5. Direct Payments

  6. Direct Payments • No Change in Payment Rates • $0.80/ cwt for oilseeds • Payment Fraction • 0.85 for 2008 and 2012 • 0.833 for 2009-2011 • Payment Timing • 22% advance available Dec. 1 • No advance on the 2012 crop • Full Payment not before Oct. 1

  7. Loan Rates

  8. Target Prices

  9. Counter-Cyclical Payments • CCP Rate = TP – [ Max(MP,LR) + DP ] • Payment Fraction • 0.85 for 2008 and 2012 • 0.833 for 2009-2011 • Payment Timing • 40% advance available 180 days after marketing year starts • No advance available starting 2011 crop year • Full or remaining payment made not before Oct. 1

  10. Counter-Cyclical Payments • Maximum CCP For Oilseeds Max CCP = TP – (LR + DP) • Through 2009: $10.10 – ($9.30 + $0.80) = zero • 2010-2012: $12.68 – ($10.09 + $0.80) = $1.79

  11. ACRE Program • Irrevocable Election beginning 2009 • Current program or • ACRE + 80%DP + 70%LR • Choice by Farm Number

  12. Average Crop Revenue Election State ACRE Guarantee = 90% *5-Year Olympic State Avg. Yield* 2-year Natl. Average Mkt. Yr. Price Restricted to < 10% change/year Actual State Revenue = Actual State Planted Acre Yield* MAX[ Natl. Average Mkt. Yr. PriceOR 70% Loan Rate] > AND Farm ACRE Benchmark = Farm's 5-Year Olympic Avg. Yield* 2-year Natl. Average Mkt. Yr. Price + Ins Premium Actual Farm Revenue = Actual Farm’s Planted Acre Yield* MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] > THEN Farm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres * [ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] * MIN[ (State ACRE Guarantee–Actual State Revenue) ORState ACRE Guarantee* 25%] Note: All Yields are Planted Acre Yields

  13. Average Crop Revenue Election (ACRE) Payment (Cont.) • Enrollment cannot exceed base acres on the farm Option to choose planted acres to enroll in ACRE • Bill reads as if LR reduction applies to entire farm • Provisions for assigning yields, etc. • Provisions for determining whether a state will have both irrigated and non-irrigated state guarantees If a state has at least 25% of the acres of a crop that are irrigated and at least 25% of the acres of the crop that are non-irrigated then Secretary shall calculate separate irrigated and non-irrigated ACRE program guarantees

  14. Texas Planted Acres

  15. Average Crop Revenue Election Sunflower Example

  16. Average Crop Revenue Election Sunflower Example

  17. Supplemental Revenue Assurance (SURE) Program • Whole farm program • Requires at least CAT or NAP purchase on all crops • Except following a prevented planting or failed crop • Except crops that are not of economic significance (NAP fee > 10% of NAP coverage) or Crop value of roughly $9,100 or less • Payment requires disaster declaration or 50% loss • Requires a minimum 10% production loss on at least one crop of economic significance • SURE Calculations • SURE Guarantee is 115% of crop insurance coverage for all crops (capped at 90% of expected revenue for all crops) • Revenue to Count for all crops = crop value + indemnities + 15% of DP + all other Gov. Pmts. • SURE Payment = (Guarantee – Revenue to Count) x 60%

  18. Payment Limits • Continue $40,000 limit on DP and $65,000 on CCP and ACRE • Loan Deficiency Payments not limited • Change to Direct Attribution (Eliminate 3-entity rule) • If one spouse is actively engaged, then both are eligible • Payment for children under 18 are attributed to parents • Will trace through 4 levels of ownership • Replace $2.5 million AGI limitation • A person with over $500,000 in nonfarm AGI will be ineligible • A person with over $750,000 in adjusted gross farm income will be ineligible for direct payments

  19. Farm Bill Changes to Crop Insurance • Farm Bill Cost Savings Created • Reduce Loss ratio to 1.0 from 1.075 • Modified reimbursement rate • Increased CAT / NAP fees • Timing shifts

  20. Crop Insurance &Risk Management Options • Crop Insurance • APH • RA • NAP • Acreage Contracts

  21. Sherman Ochiltree Lip- scomb Dallam Hansford Hutch- inson Hartley Moore Roberts Hemphill Oldham Potter Carson Gray Wheeler Arm- strong Randall Collings- worth Deaf Smith Donley Briscoe Hall Parmer Castro Swisher Child- ress Harde- man Bailey Lamb Hale Floyd Motley Cottle Wilbarger Wichita Foard Lamar Clay Red River Mon- tague Coch- ran Fannin Grayson Cooke Hockley Lubbock Crosby Dickens King Knox Archer Baylor Bowie Delta Titus Morris Franklin Jack Wise Denton Collin Cass Haskell Hunt Throck- morton Young Yoakum Terry Hopkins Lynn Garza Kent Stonewall Camp Rockwall Rains Marion Wood Upshur Dallas Tarrant Palo Pinto Parker Gaines Dawson Shackel- ford Borden Stephens Scurry Fisher Van Kaufmann Harrison Jones Gregg Smith Hood Johnson Ellis Eastland Nolan Andrews Taylor Callahan Mitchell Martin Howard Panola Henderson Rusk Erath Somervell Navarro El Paso Hill Chero- kee Bosque Loving Shelby Anderson Ector Glass- cock Midland Comanche Coke Winkler Runnels Sterling Brown Coleman Nacog- doches Hudspeth Free- stone Culberson Hamilton Augu- stine Lime- stone McClennan Ward Mills Crane Tom Green Houston Coryell Upton Angelina Reagan Sabine Leon Concho Reeves Irion Falls McCulloch Trinity Lam- pasas San Saba Robertson Bell Newton Madison Polk Tyler Jasper Schleicher Burnet Menard Pecos Milam Walker Jeff Davis Crockett San Jacinto Llano Mason Brazos Grimes Williamson Burleson Sutton Hardin Kimble Lee Travis Montgomery Liberty Orange Gillespie Blanco Washing- ton Terrell Presidio Bastrop Jefferson Kerr Hays Austin Harris Edwards Brewster Kendall Fayette Val Verde Waller Caldwell Chambers Real Comal Bandera Colorado Fort Bend Guadalupe Galveston Bexar Lavaca Gonzales Kinney Medina Uvalde Wharton Brazoria Wilson DeWitt Jackson Matagorda Maverick Karnes Frio Atascosa Zavala Victoria Goliad Calhoun Bee McMullen Dimmit Live Oak Refugio La Salle Aransas San Patricio Jim Wells Webb Nueces Duval Kleberg Kenedy Brooks Zapata Jim Hogg Starr Willacy Hidalgo Cameron Sunflower Crop InsuranceAPH and Revenue Assurance

  22. Sherman Ochiltree Lip- scomb Dallam Hansford Hutch- inson Hartley Moore Roberts Hemphill Oldham Potter Carson Gray Wheeler Arm- strong Randall Collings- worth Deaf Smith Donley Briscoe Hall Parmer Castro Swisher Child- ress Harde- man Bailey Lamb Hale Floyd Motley Cottle Wilbarger Wichita Foard Clay Mon- tague Coch- ran Hockley Lubbock Crosby Dickens King Knox Archer Baylor Jack Wise Haskell Throck- morton Young Yoakum Terry Lynn Garza Kent Stonewall Palo Pinto Parker Gaines Dawson Shackel- ford Borden Stephens Scurry Fisher Jones Sunflower Crop InsuranceAPH and Revenue Assurance

  23. Sunflower Crop InsuranceHale County APH 2009

  24. Sunflower APH • Dates • Sales Date March 15 • Planting June 15 • Reporting July 15 • Billing Oct. 1 • Proven Yields (10 year history) • t-yields

  25. Sunflower Crop InsuranceAPH and Revenue Assurance

  26. CAT and NAPCrop Insurance • CAT Coverage • Like APH (50% yield and 55% price) • $300 / crop / county • NAP Coverage • Similar to CAT (50% yield and 55% price) • $250 / crop / county

  27. Sunflower Example Revenue Profile

  28. Sunflower CAT/NAP55% Price, 50% Yield

  29. Sunflower APH (50% Yield)

  30. Sunflower APH (65% Yield)

  31. Sunflower RA (65%)

  32. On-Farm Biodiesel Production • Markets change incredibly fast. A feasibility study in print is probably out of date, or will be soon. • Things often missed in feasibility studies: • Initial investment & interest costs • Depreciation & Re-investment • Opportunity cost, especially time • Impact on equipment (real or perceived)

  33. Funding Provided by

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